Hunton Insurance Recovery Blog

A California appeals court recently reversed a trial court’s determination that a D&O insurer had no duty to reimburse legal fees incurred by a company’s former CFO in defending against an SEC civil enforcement action, shareholder derivative claims, and counterclaims by the company asserting that the CFO breached his indemnification agreement. In doing so, the appeals court rejected the insurer’s argument that the defense costs the company advanced to the CFO were “restitutionary” damages excluded from the D&O policy’s definition of loss.

The court explained that its ruling favoring broad executive protection was consistent with the generally understood purpose of D&O liability insurance—to provide protection for individuals whose business decisions, made in their capacity as the management of a corporation, subject them to the risk of personal liability for losses that the corporation or its shareholders may incur.

Following an investigation involving public companies potentially impacted by the 2020 SolarWinds software compromise, the US Securities and Exchange Commission recently charged several companies with making materially misleading disclosures regarding cybersecurity risks and intrusions. The SEC’s enforcement is the latest example of “cyber as a D&O risk,” underscoring the importance of maintaining robust directors and officers (D&O) liability coverage, along with cyber insurance, as part of a comprehensive liability insurance program designed to respond to cyber incidents.